<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
-----------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
MANOR CARE, INC.
----------------
COMMISSION FILE NUMBER 1-8195
-----------------------------
Incorporated in Delaware E.I.#52-1200376
- ------------------------ ---------------
10750 Columbia Pike, Silver Spring, Maryland 20901
- --------------------------------------------------
Telephone: (301) 681-9400
- ----------
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -------
62,507,438 Common Shares were outstanding as of December 28, 1995
This report contains 12 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
MANOR CARE, INC. AND SUBSIDIARIES
The consolidated balance sheet as of November 30, 1995, the consolidated
statements of income for the three and six month periods ended November 30,
1995 and 1994, and the consolidated statements of cash flows for the six months
ended November 30, 1995 and 1994, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows at November 30, 1995 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's May 31, 1995 annual report to
shareholders, previously filed with the Commission. The results of operations
for the three and six month periods ended November 30, 1995 and 1994, and cash
flows for the six months ended November 30, 1995 and 1994, are not necessarily
indicative of the operating results or cash flows for the full year.
2
<PAGE> 3
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
November 30, 1995 May 31, 1995
----------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 37,827 $ 75,060
Receivables (net of allowances
of $27,550 and $22,999) 103,314 96,149
Inventories 17,712 17,138
Current deferred income tax benefit 29,500 27,371
Prepaid expenses 17,731 5,360
Other current assets 9,894 9,297
--------- ---------
Total current assets 215,978 230,375
--------- ---------
Property and equipment, at cost
Land 140,599 113,768
Buildings and improvements 1,072,778 953,471
Capitalized leases 18,991 18,991
Furniture, fixtures and equipment 269,538 224,730
Facilities in progress 47,303 32,033
--------- ---------
1,549,209 1,342,993
Less accumulated depreciation (391,815) (349,202)
--------- ---------
Net property and equipment 1,157,394 993,791
--------- ---------
Lodging franchise rights 60,120 61,565
--------- ---------
Other assets 180,280 130,576
--------- ---------
$1,613,772 $1,416,307
========== ==========
</TABLE>
NOTE: The balance sheet at May 31, 1995 has been taken from the audited
financial statements at that date.
3
<PAGE> 4
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
November 30, 1995 May 31, 1995
----------------- ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 13,414 $ 5,468
Accounts payable 80,935 94,281
Accrued expenses 113,352 101,732
Income taxes 7,601 -
--------- ---------
Total current liabilities 215,302 201,481
--------- ---------
Mortgage and other long-term debt 310,534 209,630
--------- ---------
Subordinated long-term debt 157,763 157,671
--------- ---------
Deferred Income Taxes and other 253,343 222,652
--------- ---------
Stockholders' Equity
Capital stock 6,562 6,553
Contributed capital 170,907 168,699
Retained earnings 546,938 491,520
Cumulative translation adjustments (4,679) 709
Treasury stock, at cost (42,898) (42,608)
--------- ---------
Total stockholders' equity 676,830 624,873
--------- ---------
$1,613,772 $1,416,307
========= =========
</TABLE>
NOTE: The balance sheet at May 31, 1995 has been taken from the audited
financial statements at that date.
4
<PAGE> 5
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
--------------------- --------------------
1995 1994 1995 1994
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Healthcare, net $299,722 $247,118 $573,714 $490,092
Lodging 95,198 77,127 194,578 155,554
-------- -------- -------- --------
Total revenues 394,920 324,245 768,292 645,646
-------- -------- -------- --------
Expenses
Healthcare 228,657 187,332 438,147 372,060
Lodging 64,419 52,123 129,386 106,142
Depreciation & amortization 22,716 18,215 44,305 35,939
General corporate 20,995 18,750 43,445 36,216
-------- -------- -------- --------
Total expenses 336,787 276,420 655,283 550,357
-------- -------- -------- --------
Income from operations 58,133 47,825 113,009 95,289
-------- -------- -------- --------
Other income (expenses)
Interest income and other 1,349 1842 2,337 3257
Minority interest (800) (1,227) (1,765) (2,288)
Interest expense (9,594) (6,233) (16,167) (12,888)
-------- --------- -------- --------
Total other (expenses), net (9,045) (5,618) (15,595) (11,919)
-------- --------- -------- --------
Income before income taxes 49,088 42,207 97,414 83,370
Income taxes 20,300 17,200 40,200 34,000
-------- --------- -------- --------
Net income $ 28,788 $ 25,007 $ 57,214 $ 49,370
======== ========= ======== ========
Average shares outstanding 62,587 62,468 62,566 62,461
======== ========= ======== ========
Net income per share of common
stock $ .46 $ .40 $ .91 $ .79
======== ========= ======== ========
Dividends per share of common
stock $ .022 $ .022 $ .044 $ .044
======== ========= ======== ========
</TABLE>
5
<PAGE> 6
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 57,214 $ 49,370
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 44,305 35,939
Amortization of debt discount 248 402
Provision for bad debts 9,960 6,320
Increase (decrease) in deferred taxes 8,885 (2,508)
Changes in assets and liabilities
(excluding sold facilities):
Change in accounts receivable (7,563) (6,098)
Change in inventory and other current assets (9,903) (11,700)
Change in accounts payable and accrued expenses 10,325 (1,869)
Change in income taxes payable 5,472 8,733
Change in other liabilities 3,933 16,027
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 122,876 94,616
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (82,611) (69,808)
Investment in In Home Health, Inc. (22,950) -
Acquisition of operating hotels (31,670) (22,270)
Acquisition of operating pharmacies (5,533) -
Acquisition of nursing homes (11,692) (3,000)
Purchase of previously leased nursing home (2,915) -
Other items, net (4,008) (2,260)
Purchase of minority interest (27,367) -
Acquisition of assisted living facilities (19,050) -
-------- ---------
NET CASH UTILIZED BY INVESTING ACTIVITIES (207,796) (97,338)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 116,745 -
Principal payments of debt (66,908) (7,245)
Proceeds from exercise of stock options 598 248
Dividends paid (2,748) (2,741)
-------- --------
NET CASH PROVIDED (UTILIZED) BY
FINANCING ACTIVITIES 47,687 (9,738)
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (37,233) (12,460)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 75,060 60,487
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,827 $ 48,027
======== ========
</TABLE>
6
<PAGE> 7
MANOR CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
(unaudited)
Long-Term Debt
Long-term debt was $468 million at November 30, 1995 compared to $367 million
at May 31, 1995. The Company has a $250 million competitive advance and
multi-currency revolving credit facility provided by a group of eighteen banks.
This facility provides that up to $75 million is available for borrowings in
foreign currencies. Borrowings under the facility are, at the option of the
Company, at one of several rates including LIBOR plus 26.25 basis points. In
addition, the Company has the option to request participating banks to bid on
loan participation at lower rates than those contractually provided by the
facility. The facility requires the Company to pay fees of 3/16 of 1% on the
entire loan commitment. The facility will terminate on November 30, 1999.
Outstanding borrowings at November 30, 1995 totalled $172 million.
Acquisitions, Divestitures and Sales of Property
During the first six months of fiscal 1996, the Company acquired operating
healthcare facilities in Illinois and in Washington for approximately $11.7
million, the lease on an operating healthcare facility for $2.9 million and two
pharmacy businesses for $5.5 million. Six assisted living facilities, with
five attached skilled nursing units, were purchased for $74.3 million, of which
$19 million was cash and the remainder was assumed liabilities. In addition,
the Company acquired eleven hotels (ten operating and one under renovation)
containing over 1,132 rooms for approximately $31.7 million. These acquisitions
were accounted for as a purchase and approximately 70% of total costs were
allocated to buildings, 20% to land and the remainder to furniture, fixtures and
equipment and other.
In October 1995, the Company purchaseed 40% of In-Home Health, Inc.'s (IHHI), a
provider of home health services, common stock for $22.9 million. The Company
paid an additional $20 million to IHHI for 100% of its outstanding voting
convertible preferred stock and for warrants to purchase an additional 6 million
shares of common stock. As a result of this transaction the Company effecively
controls 60% of the voting stock of IHHI. This transaction is accounted for as
a purchase and consolidated in the Company's financial statements. Also during
the first six months of fiscal 1996 the Company paid $27.4 million for the
repurchase cost of one-half of the 11% interest held by its management in a
lodging subsidiary.
During fiscal year 1995, the Company acquired sixteen operating hotels
containing a total of 2,300 rooms for approximately $59.8 million. Also during
fiscal 1995, one pharmacy business, nine operating healthcare facilities and
assisted living facilities were acquired for approximately $59.2 million.
7
<PAGE> 8
MANOR CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Available cash balances of $38 million as of November 30, 1995 and unused lines
of credit of $87 million are considered adequate to ensure sufficient liquidity
and capital resources for both the upcoming year and the foreseeable future.
Results of Operations
Net income for the three months ended November 30, 1995 was $28.8 million or
$.46 per share, compared to $25.0 million or $.40 per share reported in the
prior year quarter. Net income for the six months ended November 30, 1995 was
$57.2 million or .91 per share, compared to $49.4 million or .79 per share,
last year.
Income from operations for the three and six month periods ended November 30,
1995 were $58.1 million and $113.0 million, respectively. This compares to
income from operations in the same periods last year of $47.8 million and $95.3
million.
Gross profit for the healthcare division for the three and six month periods
ended November 30, 1995 increased $11.3 million and $17.5 million,
respectively, when compared to the same periods last year. For the three and
six months ended November 30, 1995, healthcare revenues rose 21.3% and 17.0%
and operating expenses rose 22.0% and 17.8%, respectively. Higher occupancies
and rate increases in the Company's nursing facilities improved year-to-date
gross profits by $3.8 million and $2.3 million, respectively.
Gross profit for the lodging division for the three and six months ended
November 30, 1995 increased $6.0 million and $15.8 million, respectively, when
compared to the same periods last year. Lodging revenues increased 23.4% and
25.1% for the three ans six month period ended Novebmer 30, 1995, respectively.
Lodging expenses increased 23.6% and 21.9% for the three and six month periods
ended November 30, 1995, respectively. Significant increases in revenues and
expenses are due to the recent purchase of hotels. In fact, hotel acquisitions
have contributed $19 million and $6 million to the increase in year-to-date
revenues and operating profits, respectively. Furthermore, operating profits
have increased due to the economy's gradual recovery which has stimulated
demand for the Company's economy and mid-market lodging brands. This recovery
has improved the Company's hotel franchise subsidiary year-to- date profits by
$9 million over the prior year.
8
<PAGE> 9
MANOR CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Depreciation and amortization increased $4.5 million and $8.4 million for the
three and six month periods ended November 30, 1995, respectively due to
acquisitions and increases in property and equipment resulting from additions
and renovations to existing facilities.
General corporate expense for the three and six month periods ended November
30, 1995, increased $2.2 million and $7.2 million, respectively, when compared
to the same period last year. This increase was primarily due to general
inflation and reengineering efforts in both organizational and financial
systems which will facilitate future growth. General corporate expense
represented 5.3% and 5.7% of revenues during the three and six month periods
ended November 30, 1995 compared to 5.8% and 5.6% for the same periods last
year. General corporate expense includes risk management, information systems,
treasury, accounting, legal, human resources and other administrative support
functions.
Interest expense for the three and six month periods ended November 30, 1995
increased $3.4 million and $3.3 million when compared to the same periods last
year. Interest capitalized, in conjunction with construction programs,
amounted to $1.4 million and $.8 million in the six months ended November 30,
1995 and 1994, respectively.
9
<PAGE> 10
MANOR CARE, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual shareholders meeting on September 28, 1995, the shareholders
elected the directors who had been nominated by the Company. The number of
votes cast was as follows:
<TABLE>
<CAPTION>
For Against/Withheld
--- ----------------
<S> <C> <C>
Stewart Bainum, Jr. 49,378,818 114,001
Stewart Bainum 49,337,472 155,347
Jack R. Anderson 49,381,667 111,152
Regina E. Herzlinger 49,393,168 99,651
William H. Longfield 49,395,219 97,600
Frederic V. Malek 49,381,445 111,374
Jerry E. Robertson 49,395,742 97,077
</TABLE>
The shareholders approved the Manor Care, Inc. 1995 Long-Term Incentive Plan,
under which 1,110,122 shares of Company common stock will be reserved for
issuance upon exercise of options or grants to key employees and for other
grants to such individuals. There were 41,042,071 shares voted in favor of the
proposal, 7,762,498 shares voted against, 138,166 shares abstaining and 550,084
broker non-votes.
The shareholders also approved the Manor Care, Inc. 1995 Employee Stock
Purchase Plan, under which eligible employees may purchase up to 1,000,000
shares. There were 48,166,465 shares voted in favor of the proposal, 636,558
shares voted against, 139,712 shares abstaining and 550,084 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule
(b) There were no reports filed on Form 8-K for the three months ended
November 30, 1995.
10
<PAGE> 11
MANOR CARE, INC. AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
(Registrant) MANOR CARE, INC.
------------------
Date: January 11, 1996 By: James A. MacCutcheon
---------------- Senior Vice President,
Chief Financial Officer
and Treasurer
Date: January 11, 1996 By: James H. Rempe
---------------- Senior Vice President,
General Counsel and Secretary
Date: January 11, 1996 By: Margarita Schoendorfer
---------------- Vice President and
Corporate Controller
</TABLE>
11
<PAGE> 12
EXHIBIT INDEX
27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONOLIDATED STATEMENTS OF INCOME AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1995
<PERIOD-END> NOV-30-1995
<CASH> 37,827
<SECURITIES> 0
<RECEIVABLES> 130,864
<ALLOWANCES> 27,550
<INVENTORY> 17,712
<CURRENT-ASSETS> 215,978
<PP&E> 1,549,209
<DEPRECIATION> 391,815
<TOTAL-ASSETS> 1,613,772
<CURRENT-LIABILITIES> 215,302
<BONDS> 468,297
<COMMON> 0
0
6,562
<OTHER-SE> 670,268
<TOTAL-LIABILITY-AND-EQUITY> 1,613,772
<SALES> 0
<TOTAL-REVENUES> 768,292
<CGS> 0
<TOTAL-COSTS> 655,283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,960
<INTEREST-EXPENSE> 16,167
<INCOME-PRETAX> 97,414
<INCOME-TAX> 40,200
<INCOME-CONTINUING> 57,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,214
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91<F1>
<FN>
<F1>The Company presents simple earnings per share (EPS) on the face of its income
statement as fully dilutive EPS. The fully dilutive EPS is within 97% of
simple EPS. The figures presented above are simple EPS.
</FN>
</TABLE>
